GOP Michigan Senate may tie gas tax hike to income tax cut
Lansing — Republicans who control the state Senate could decide to vote this week on a $1.4 billion road-funding plan that would tie a 15-cent-per-gallon gas tax increase to potential income tax reductions.
Sen. Mike Kowall, the GOP floor leader, said an emerging plan calls for a 15-cent gas tax hike over three years to generate $700 million when fully implemented and earmarking $700 million in existing general revenue for road repairs.
Michigan’s 19-cents-a-gallon gas tax has not been increased since 1997. After fully implemented, the proposed 34-cents-a-gallon tax would be indexed to inflation so it could be increased in later years, said Kowall, R-White Lake Township.
A phased-in gas tax hike of 5 cents per year for three years is being paired with future reductions in the 4.25 percent income tax rate that would depend on tax revenue in the state’s $10 billion general fund exceeding the rate of inflation, he said.
“Any balance, as the economy increases, that money would go right back to the taxpayers,” Kowall said.
Several Senate Republicans have long desired to trim Michigan’s income tax rate to 3.9 percent after their predecessors hiked the tax in 2007 to balance the state budget in the midst of Michigan’s deep economic recession.
“If there’s going to be more tax on a gallon gas (and) if it could be connected to an income tax cut, I think people would be more receptive to it,” said Sen. Rick Jones, R-Grand Ledge.
The Senate is returning to the Capitol Tuesday after a one-week hiatus with a main focus on forging a deal on road funding after voters resoundingly rejected the Proposal 1 sales and gas tax plan on May 5.
Senate Republicans plan to deliberate mid-day Tuesday on Senate Majority Leader Arlan Meekhof’s new road funding proposal at a caucus retreat outside of the Capitol.
Meekhof, R-West Olive, has scheduled a Government Operations Committee meeting at 4 p.m. Tuesday to advance road funding bills if the GOP caucus can forge an agreement on a plan, spokeswoman Amber McCann said Monday.
A committee vote on Tuesday would allow the full Senate to vote on the package of bills as early as Wednesday. If Meekhof can get 20 of the 27 Senate’s Republicans to vote for a road funding plan, they could do it without any input from the minority party Democrats.
“I haven’t seen a line of text yet of what any of these bills might look like,” Senate Minority Leader Jim Ananich, D-Flint, said Monday. “That is the prerogative of the majority.”
The Republican-controlled House has adjourned until July 14 after passing a $1.16 billion road funding plan on June 10 that relies heavily on existing tax revenue and eliminating a tax break for the working poor.
But so far, elimination of the Earned Income Tax Credit has not emerged as part of Meekhof’s plan, though the majority leader has said he isn’t ruling out any options for road funding.
The House plan does call for earmarking $700 million in existing revenue over four years. The emerging Senate plan was seen Monday as an attempt to forge a compromise with the House by redirecting existing revenue while raising taxes.
“We think it’s probably a good compromise between the two camps of finding all new revenue and cutting the budget to fix the problem,” said Lance Bioniemi, vice president of government affairs at the Michigan Infrastructure & Transportation Association.
Jones said Monday he’s open to a “small tax increase” that is coupled with cutbacks in other government spending and an income tax cut.
“I’m not opposed to some increase,” Jones said. “I think people in Michigan overwhelmingly want the roads fixed.”
Jones has long been a proponent of putting a one-cent sales tax increase on a statewide ballot that would be solely dedicated to roads and transportation spending. The existing sales tax is 6 percent.
In December, Gov. Rick Snyder and the Legislature’s Republican and Democratic leaders deal struck a deal to put a one-percentage-point sales tax increase on the ballot that included more spending for schools and municipalities.
The complicated Proposal 1 also contained a repeal of the sales tax on gasoline and an increase in the Earned Income Tax Credit, which Republicans reduced in 2011 to help balance the state budget.
Jones complained Monday that Proposal 1 was designed to get votes from Democrats since constitutional amendments require a two-thirds majority of both houses of the Legislature.
“Since we had to have two-thirds to put it on the ballot, it became the Gretchen Whitmer plan, which was a nightmare,” said Jones, referring to the former Senate Democratic leader. “It was a total Christmas tree bill.”
Whitmer, of East Lansing, said Monday she favored the straight gas tax increase former Senate Majority Randy Richardville wanted instead of the complicated Proposal 1 road funding scheme.
“Prop 1 was Gov. Snyder’s plan. He was desperate to get something done because his own super majority (in the Senate) wouldn’t help him,” Whitmer told The Detroit News. “Ironically, it looks like Sen. Jones and his caucus are poised to do something similar.”